FWCA Transport and Allied Services Cooperative

January 27, 2009 BIR RULING [COOP-(M-016) 042-09] ECCP016-07 FWCA Transport and Allied Services Cooperative Moncado Settlement Barangay Limao, Samal District II Island Garden City of Samal Attention: Mr. Decierdo D. Sosas Chairperson Gentlemen : This refers to your letter requesting for tax exemption under the provisions of Republic Act (R.A.) No. 6938, otherwise known as the Cooperative Code of the Philippines. cHaADC It is represented that the FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE is a cooperative duly registered with the Cooperative Development Authority (CDA); that the objectives and purposes for which it was formed are those stated in the Articles of Cooperation; and that it has submitted to this Office in support of its request and in compliance with Section 8 of Revenue Memorandum Circular No. 48-91 dated June 18, 1991, as amended by Revenue Regulations No. 20-2001, the following documents, viz. : (1) Certificate of Registration from the CDA; (2) Articles of Cooperation and By-Laws; and (3) Certificate of Good Standing from CDA. In reply thereto, please be informed that Section 3.2 of Revenue Regulations No. 20-2001 dated November 12, 2001 provides that "SEC. 3. Exemption from Taxes. xxx xxx xxx 3.2. Taxability/Exemption of duly registered cooperatives dealing/transacting business with both members and non-members: 1. For cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) a. Exemption from all national internal revenue taxes for which they are directly liable, as enumerated under Sec. 3.1. of these Regulations." Based on the foregoing, FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE is exempt from the ordinary income tax on your transactions with both members and non-members for a period of ten (10) years effective September 22, 2003, its date of registration with the CDA, pursuant to Article 62 of the Cooperative Code. Thereafter, its income tax exemption shall be limited to business transactions/dealings with members only. Provided, further, that income tax exemption is still applicable to business transaction with non-members if the accumulated reserves or undivided net savings is not more than Ten Million Pesos. On the other hand, if the accumulated reserves or undivided net savings after the lapse of the above ten-year period is more than P10 Million, you shall be liable to income tax. (Section 62, R.A. No. 6938) Moreover, FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE is exempt from the value-added tax (VAT) on its gross receipts from lending activities under Section 109 (M) of the Tax Code of 1997, as amended by R.A. No. 9337, as implemented by Revenue Regulations No. 16-2005, as amended. FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE is also exempt from the payment of the 3% percentage tax and the annual registration fee of P500, respectively imposed under Sections 116 and 236 (B) of the same Code, but it is are not exempt from registration. CcaDHT However, FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE is liable to pay the 12% VAT billed to it on its purchases of goods and services because said tax is an indirect tax which can be passed on or shifted as part of the cost of the goods sold/services rendered. In case it will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his income tax return for tax purposes. Furthermore, FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE interest income from currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and interest income it will derive from a depositary bank under the expanded foreign currency deposit system shall be subject to the 20% and 7.5% final tax, respectively, imposed under Section 27 (D) (1) of the Tax Code of 1997. It shall also be taxed on capital gains realized on sales or exchanges of property. It is emphasized, however, that the exemption of the cooperative does not extend to the individual members thereof. Moreover, the cooperative shall be constituted as a withholding agent if it acts as an employer and its employees receive compensation income subject to withholding tax provided for in Section 57 of the Tax Code of 1997. Furthermore, said members shall also be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. Finally, FWCA TRANSPORT AND ALLIED SERVICES COOPERATIVE is required to file on or before the 15th day of the fourth month following the close of its accounting period, a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in the By-Laws, Articles of Cooperation, manner of activities as well as sources and disposition of income. A copy of this letter of exemption must be attached to the Annual Information Return which it will file on or before said date. It is of course understood that its books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purposes of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. UN-ECCP-064-95 dated August 29, 1995 cited in BIR Ruling No. UN-ECCP-009-96 dated February 28, 1996) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. DTAHSI Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service